How Accounts Receivable Financing Can Accelerate Your Business Growth

If you find yourself needing cash from unpaid invoices to take advantage of growth opportunities, then accounts receivable financing may be a great option. When you factor an invoice, the factoring company buys the invoice from you for a percentage of the amount due. You receive the funds within a couple of days, and the factor waits for payment from your customer. Once payment is made, you’ll receive the balance less the fee for the service.

Purchasing Raw Materials and Paying for Labor

If you purchase raw materials to make finished goods for your customers, you may need the funds from the last invoice to purchase what you need to produce the next order. By factoring your invoices, you gain access to the funds needed to fulfill new and larger contracts.

During periods of growth, you may need to hire additional staff to complete the jobs. Factoring invoices frees up the capital to pay staff on time without tapping into other financial resources while you wait for payment.

Allocating Time and Resources

Factoring allows you to outsource some of the collection activities to the company that purchases your invoices. Rather than contacting your customers to follow up on missing payments, the factoring company will make contact and work with the customer on paying the invoice. You and your accounting team can spend more time on functions that drive the business.

Managing Debt to Income Ratios

Because accounts receivable financing is not considered a loan, the financing amounts are not typically included as a liability on the balance sheet. Factoring fees are accounted for on the income statement as an expense. If you are working to position your company for traditional bank financing or lines of credit, keeping debt to income ratios low can help you qualify for long-term credit from a bank or other lender.

Keeping Control of Assets

Because accounts receivable financing does not require collateral, you can keep assets free to pledge towards other types of credit should the need arise. Rather than selling a portion of the company to raise working capital, you maintain ownership and can choose to sell at a point in the future when the business is worth more.

Stimulating Growth Through Factoring

Factoring has been used by businesses of every size for thousands of years. Managing cash flow can be challenging for any size business, and accounts receivable financing can help you gain access to the funds due to you sooner, so you can take advantage of opportunities that accelerate your business growth.